Keurig Dr Pepper Inc (KDP) — Q3 2020 Earnings Call Transcript

Thank you. And hello, everyone. Thanks for joining us. Earlier this morning, we issued our press release for the third quarter of 2020. If you need a copy, you can get one on our website at keurigdrpepper.com in the Investors section. Consistent with previous quarters, today we will be discussing our performance on an adjusted basis excluding items affecting comparability. The company believes that the adjusted basis provides investors with additional insight into our business and operating performance trends. While the exclusion of items affecting comparability is not in accordance with GAAP, we believe that the adjusted pro forma basis provides meaningful comparisons and an appropriate basis for discussion of our performance. Details of the excluded items are included in the reconciliation tables included in our press release and our 10-Q, which will be filed later today. Due to the inability to predict the amount and timing of certain impacts outside of the company’s control, we do not reconcile our guidance. Joining me virtually today to discuss our third quarter 2020 results are KDP Chairman and CEO, Bob Gamgort; our CFO, Ozan Dokmecioglu; and our Chief Corporate Affairs Officer, Maria Sceppaguercio. And finally, our discussion this morning may include forward-looking statements, which are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, and the company undertakes no obligation to update these statements based upon subsequent events. A detailed discussion of these risks and uncertainties is contained in the company’s filings with the SEC. With that, I’ll hand it over to Bob.

Thanks, Tyson. And good morning, everyone. I hope everyone participating on this call continues to be well. The last few months have been extremely volatile, given the COVID crisis. While consumer mobility has increased and the economy has opened up somewhat, the coming months are likely to remain unpredictable, as rates of infection in North America appear to be on the rise. As we'll discuss today, KDP continues to navigate well through the pandemic by anticipating and adjusting to trends in consumer behavior, driving brands, categories, and channels with growth potential in order to offset other areas that are challenged. The pandemic does not represent a short-term windfall for us. Instead, this is a day-to-day mixed management effort across both channels and products, which is enabled by the flexibility of our business model and the outstanding executional capabilities of our team. We monitor consumer mobility trends on a near-daily basis to adjust our product mix, channel focus, and production planning, and continue to view this metric as a reliable leading indicator for running our business. Most of all, we continue to be thankful to our team members who have driven the results we reported today and the work our organization has done to give back to our communities when they are in need. Ozan will take you through the specifics of our third quarter results in a few minutes. However, I will tell you that in summary, they were outstanding, nearly 6% revenue growth, 16% adjusted operating income growth, and 22% adjusted diluted EPS growth, with continued deleveraging. We gained market share of total liquid refreshment beverages in over 90% of our retail base, driven by gains in the majority of category segments in which we compete, with a number of highlights worth mentioning, such as the 1.4 share point increase in CSDs, driven by growth in the great majority of our CSD brands, strength in the Snapple brand, which delivered a 1.5 share point increase in ready-to-drink tea, and nearly a 1 share point increase in juice drinks, with CORE being the fastest growing premium water brand over the quarter. Our Beverage Concentrates segment saw substantial quarter-over-quarter improvement as restaurants experienced improved traffic. In single-serve coffee, we delivered 10% growth in at-home consumption driven by increases in both household penetration and an elevated attachment rate, which was partially offset during the quarter by our away-from-home coffee business, which continues to be negatively impacted by persistently low return to work trends in large offices, which is our area of strength, and the timing of some partner shipments. In the fourth quarter, we expect total pod shipments to return to their more normalized mid to high single-digit growth rates despite our expectations that weakness in the away-from-home channel will continue. Finally, the exceptional growth in brewer sales in advance of the fourth quarter speaks to the enthusiasm retailers have for Keurig in the holiday season, which is upcoming. With one quarter to go, our guidance for this year remains intact, now at the high end of what we said we would accomplish in 2020, which means that we continue to meet or exceed the long-term merger targets we communicated over two years ago. Before I turn it over to Ozan, I'd like to take a few minutes to put our quarterly results and several pieces of news that we communicated this week into a longer-term strategic context, all supporting the evolution of KDP to a modern beverage company. We focused much of our past earnings call content on how we are expanding the consumer reach of our brand portfolio, which is a critical driver of long-term profitable growth. This conversation typically focuses on new brands and M&A. But it's very important to point out that the broad share growth we've experienced on existing brands, both before and during the pandemic, has been driven by increased household penetration in both our hot and cold portfolios, which we expect will stick going forward. This is the result of impactful innovation and renovation as well as strong marketing programming that's attracting new consumers into our brands. Growth in existing brands provides the foundation upon which to add new ones. We continue to pursue opportunities to fill whitespace in our portfolio through national partnerships, such as our recent agreement with Polar and smaller bets, such as investments that we made last year in A Shoc energy drink with Lance Collins, a recently announced Don't Quit! adult nutrition protein drink with Jake Steinfeld, and a recent investment in Revive, a kombucha drink with Peet's Coffee. With regard to the Keurig brand, we consistently expanded household penetration year-in and year-out. And 2020 is turning out to be an especially strong year for system adoption. Rather than growing household penetration by 2 million households, which is consistent with our recent run rates, we now expect to add approximately 3 million new households in 2020. While attachment rates may move up and down and potentially back up again during another wave of the pandemic, converting new households into the Keurig system represents a long-term annuity stream that endures well into the future. While portfolio expansion has taken center stage since the merger, we've also been building our unique and valuable distribution platforms, although we haven't discussed them until recently. On our last earnings call, we quantified how important e-commerce has become for us, representing more than 10% of total KDP sales and a larger portion of coffee sales. We recently announced news regarding our Direct Store Delivery system that is worth placing into a broader strategic context. Since our merger, we have invested in people, technology, and assets to improve the effectiveness of our DSD network. We've also focused on consolidating key independent distributor systems into our company-owned DSD operations, where territories overlap in order to drive scale and efficiency. We jointly announced with Honickman Companies an agreement that provides KDP with long-term sales and distribution for key brands, including Canada Dry, Sunkist, 7UP, and A&W across 18 counties in New York and New Jersey, reaching 17 million consumers. This follows a string of DSD territory moves and acquisitions across the country over the past two years, including California, New York, and the Midwest. To be clear, our objective is not to control every market with our trucks but rather to ensure that each market in which we sell our brands has a competitive route to market, regardless of who owns the territory. Whether we operate our trucks in the market, or we partner with a local player of scale, every one of these moves ensures better reach, in-stocks, and merchandising for our brand portfolio, which builds our platform for long-term growth. Our strong in-market performance this year demonstrates the value of these system improvements and we believe we have significant opportunity remaining. Important to a modern beverage company is a strong sustainability culture, and continuously pushing forward to meet new and more aspirational goals. Earlier this week, we announced that we have begun the transition of our Snapple and CORE bottles to 100% recycled PET, or rPET. We will continue to expand rPET across our portfolio going forward. Finally, consistent with our goal to build KDP for the long term, we also announced changes earlier this week to our senior leadership team designed to further improve speed to market and place decision-making closer to our consumers and our customers. 2.5 years into our merger and with the benefit of learning what has worked so well during the pandemic, this is a decision made from strength. And we're fortunate to have the talent on our leadership team to assume broader operating roles with increased levels of responsibility. Let me now hand it over to Ozan for more details on the quarter.

Thanks, Bob, and good morning, everyone. Continuing on an adjusted basis, I will briefly review our performance for the third quarter, which our press release discusses in significant detail. The third quarter was another good one for us. As Bob discussed, we believe that this strikes the right balance of continuing to invest in areas such as innovation, technology, and sustainability that provides competitive advantage while continuing to deliver our financial commitments. Constant currency net sales increased 5.8% with growth in three of our four segments, led by Packaged Beverages and Coffee Systems, combined with sequential improvement in Beverage Concentrates. On a constant currency basis, adjusted operating income increased 16.3% in the quarter, driven by strong revenue growth, productivity, and merger synergies, as well as a reduction in discretionary overhead expenses, including marketing. These drivers were partially offset by higher operating costs associated with increased consumer demand for our products and inflation in logistics. In the third quarter, pre-tax operating expenses directly related to COVID-19 totaled $49 million, and consistent with previous quarters, were recognized as items affecting comparability. These expenses consisted of temporary and unusual compensation increases and incentives for frontline employees, as well as incremental safety and sanitation expenses across our business. Adjusted diluted EPS advanced 22% in the quarter, fueled by the growth in adjusted operating income, lower interest expense as a result of continuously leveraging, and the lower effective tax rate. Turning to our segment performance for the quarter. In Coffee Systems, constant currency net sales growth of 3.2% was driven by strong volume mix growth of 6% partially offset by lower net pricing of 2.8%. The volume mix performance reflected a 34% increase in brewer shipments, incremental net sales from McCafé, and higher shipments of K-Cup pods for at-home consumption. Significantly offsetting these growth drivers were the continued drop-off in the office coffee and hospitality businesses. While the segment’s operating margin declined slightly in the quarter due primarily to mix, which includes the stronger brewer performance, constant currency adjusted operating income increased 1.6% to $373 million. As mentioned on our second quarter call, we are excited about the upcoming launch of our first Connected Brewer. Demand for Keurig brewers remains extremely strong heading into the holiday season, in part driven by our new K-Supreme platform. We have decided to wait until 2021 to launch the new Connected Brewer to enable us to focus our marketing efforts in the balance of the year behind K-Supreme and our existing brewer line, given the unprecedented demand we are experiencing. In Packaged Beverages, constant currency net sales grew 10.7% due to strong volume mix growth of 11.4%, partially offset by slightly lower net pricing of 0.7%. This performance reflected strong growth in both our company-owned DSD and warehouse direct businesses. In the quarter, we grew both our carbonated and non-carbonated brand portfolios due to increased at-home consumption and continued market share growth, resulting from strong in-market execution. This growth was partially offset by a decline in the convenience and gas channels, but the decline moderated as compared to the second quarter of this year as consumer mobility improved. Constant currency adjusted operating income increased 51.2% in the quarter to $304 million, primarily reflecting the sales growth and discretionary spending reductions. As Bob mentioned earlier, we are thrilled with the agreement announced yesterday with Honickman, which will drive significant value creation for KDP over time. Long-term sales and distribution access for our key brands that we are gaining through this transaction is being done through a unique asset-light structure. Specifically, Honickman is selling these rights to a third-party funded by Prudential Capital and KDP entered into a simultaneous transaction with the third-party to gain long-term access to the rights. There were various ways that we could have structured this deal, including a straight-up acquisition. Instead, we chose to use a third-party and pay a small annual fee given that we already have a sales and distribution presence in the area and didn't need any of other assets from the transaction. The arrangement provides us with control of our brands for which we can maximize the economics and it also provides the scale to our existing brands currently being distributed in the area through our company-owned DSD network and dedicated independent operators. In Beverage Concentrates, we experienced a meaningful sequential quarterly improvement. Specifically, constant currency net sales versus year ago declined a modest 2.2% versus the double-digit decline during the height of the shelter-in-place directives in quarter two. This modest decline in quarter three was due to lower volume mix of 4.8% partially offset by higher net price realization of 2.6%. This sequential improvement reflected a moderating decline in the fountain foodservice business as consumer mobility increased and restaurant traffic picked up. Constant currency adjusted operating income increased 8.6% in the quarter to $265 million, primarily reflecting lower discretionary spending. And finally, in Latin America Beverages, constant currency net sales grew 0.7%, reflecting strong pricing of 5.2% partially offset by lower volume mix of 4.5% due to limited consumer mobility in Mexico. Operating income was flat to the year-ago period. On a constant currency basis, operating income increased 12% to $25 million in the quarter, due to the strong net sales growth, as well as continued productivity and lower marketing expense. The drivers were partially offset by the unfavorable impact of foreign currency transaction expense. While the current environment has proven the power of our brands, it has also made evident the importance of simplification. To meet heightened demand and drive efficiency, we have continued to focus our production and delivery on the highest priority brands and products with great success. Through this process, we have performed a detailed review of the offerings in our system to ensure we deliver on our customers' needs while also ensuring we are efficient. This will continue to be a focus of ours going forward. In terms of our ongoing productivity and merger synergies, we continue to focus and execute on these opportunities. We remain committed to delivering our value capture commitments through both productivity and merger synergies, and fully expect to deliver our current merger synergies of $600 million by the end of 2021. Now moving to cash flow and liquidity. Free cash flow in the quarter was again strong at $525 million, and our year-to-date free cash flow conversion rate was approximately 105%. In the quarter, we reduced bank debt by $225 million and structured payables by $21 million. And we ended the quarter with over $190 million of unrestricted cash on hand. In terms of leverage, our bank debt to adjusted EBITDA ratio, which we refer to as our management leverage ratio, improved to 3.8 times compared to 4.8 times at the end of the third quarter of 2019. This improvement was driven by continued reductions in outstanding debt balances and continued growth in adjusted EBITDA. Since the merger close, we have reduced our leverage ratio by over 2 full terms. Turning now to CapEx. We continue to support the business with necessary CapEx investment to drive future growth and efficiency. As we discussed last quarter, our new Spartanburg pod production facility has been delayed approximately 6 months resulting from equipment supplier delays, and our new cold beverages production facility in Allentown is also delayed about three months for similar reasons. We have always expected most of these facilities to primarily be contributors to our business in 2021. And our expectations regarding these minor delays have not changed. Which brings us to our guidance. We continue to have confidence in our ability to manage through what is likely to be a bumpy road in the balance of the year, much as we have done to date. Our outlook for the full year adjusted diluted EPS growth remains unchanged at 13% to 15%. With delivery likely at the high end of this range, this outlook reflects our expectation for: constant currency net sales growth at the high end of the range of 3% to 4%; continued strong management of discretionary costs across the business while maintaining investments in innovation, technology, and sustainability; expected higher marketing investment in the fourth quarter of the year, relative to the third quarter, given the expectation for an environment in which consumer receptivity to marketing and marketing return on investment continues to improve. It is important to note that we plan to reinvest any order delivery we may generate in the fourth quarter into incremental brand investment to further drive top-line growth, while still delivering our adjusted EPS guidance for 2020. We also have confidence in our deleveraging targets. And now we expect our management leverage ratio to be in the middle of our 3.5 times to 3.8 times range at the end of the year. With that, let me now turn the call back to the operator for your questions.

My question this morning is, I guess I wanted to drill down a little bit more on your brewer shipment volumes, which were obviously much better than anyone would have expected in the quarter. So I was trying to understand, how much of that will be reversed next quarter, and essentially, how much of your brewer volumes in Q3 really reflected a pull forward in demand from Q4? Bob, maybe you could touch on this. But for instance, are you already seeing a step down in brewer orders during October versus the year ago period? And then in terms of innovation, you did call out that you're now shifting some of this to next year. But I just really wanted to verify that there are no plans for any more brewer innovation in 2020. Thank you.

Good morning, Bonnie. First, let's discuss brewer shipments. As we've mentioned over the last couple of years, brewer shipments are a reliable indicator of household penetration, particularly on a quarter-to-quarter basis. I want to point out that every third quarter includes shipments intended for the holiday season. This year, we're experiencing a slight pull forward, meaning some of those holiday shipments, which would typically occur in October and November, are happening in the third quarter as retailers aim to prepare in advance due to the pandemic. The key takeaway is the confidence retailers have in Keurig for holiday gifting, which is supported by our innovation and robust marketing efforts. We've received positive feedback on all the brewers we've launched over the past year, especially the K-Supreme and K-Supreme Plus, which are positioned as highlighted items for the holiday season and are set to drive Keurig's presence this year. However, the most critical metric we discussed today is our projection for household penetration. We've previously stated that quarterly shipments can fluctuate, and they're more meaningful when assessed over a longer timeline. The crucial point today is that instead of our usual target of adding 2 million households to the Keurig system annually, we now anticipate that number to be 3 million. As mentioned earlier, attachment rates can vary, and quarterly shipments are interesting but don't carry as much weight in the long term. An additional 1 million households will remain in the system for an extended period. Regarding the balance of the quarter, I believe we have provided clarity on household penetration. We've also indicated our expectations for pod volume growth in the fourth quarter, which suggests a normalization trend. Our guidance is now at the upper end of our latest projections for the year, and we will reinvest everything back into marketing and innovation. We will not launch any new innovations in the fourth quarter since we have a substantial lineup for both our cold and hot products that we will implement in that period. However, the investments we can make now to prepare for 2021 are crucial to starting the year off strong. Additionally, we remain committed to our three-year total shareholder return target, which started in 2018 and concludes in 2021. While we are confident in finishing 2020 on a high note, we are also focused on making 2021 a successful year. Thank you for your questions.

So I was hoping we could drill down a little bit on margins, remarkably good for Beverage Concentrate and Packaged Beverages, both multi-year highs. Of course, I understand that synergies contributed there. Can you talk about marketing levels in the quarter, how that stood year-over-year, and the other key drivers that drove the strong margin performance? And then longer term, you kind of touched on this a little bit, but the company has done a fantastic job in terms of synergy realization, which you'll complete by the end of next year. Maybe talk a little bit about productivity longer term. And if that's something you will kind of formalize and put out a new program at the appropriate time for The Street? So, thanks for that.

Good morning, Kevin. First, I want to address two key margin metrics. Our gross margin saw a small decline of 120 basis points while our operating income margin increased by 260 basis points. Although the third quarter showed strong performance with 5.8% constant currency net sales growth and 22% EPS growth, it wasn't an easy win and required significant effort, especially in light of the ongoing crisis. The slight drop in gross margin presents challenges stemming from various factors, with an unfavorable product mix being prominent, especially with brewers that tend to have low profitability but high volume. We also faced increased operating costs driven by rising consumer demand and inflation impacting our logistics expenses. However, we successfully achieved considerable reductions in our overhead, incorporating sales, marketing, and general administrative costs through productivity initiatives and merger synergies that greatly contributed to lowering our cost structure. Our SG&A also accounts for advertisement and promotion expenses, which we scaled back when the return on investment didn’t justify the spend, particularly during the COVID-19 situation. This combination of factors positively influenced our ability to expand our operating income margin significantly. As discussed, we remain on track to meet our merger synergy target of $600 million by the end of 2021. Our base productivity programs are being executed effectively, and ongoing focus on these initiatives continues to yield improvements in margins and overall profitability for the third quarter. Looking ahead, our productivity efforts and merger synergies will persist into 2021, with plans for enhancements in our manufacturing and logistics footprints, as well as cost reductions. We are currently constructing state-of-the-art facilities, such as the Spartanburg K-Cup pod facility in South Carolina, expected to be operational in 2021, which will enhance productivity and coffee volume. Additionally, the Packaged Beverage plants in Allentown will support our productivity goals, along with the Beverage Concentrate facility being developed in Ireland. Overall, we are pleased with the effectiveness of our productivity initiatives and merger synergy programs.

Kevin, just to add to that, I mean, you could tell from Ozan's answer here that we are very focused on making sure that we run a highly efficient business, and we have a lot of programming going on for that. In terms of your question about beyond 2021, our focus has been, first of all, navigating through this crisis, which continues. I don't ever want to talk about it as if it's over because it's far from that; delivering 2020, setting ourselves up for 2021. At the right time in 2021, we will have a conversation with you guys about what the post-2021 world looks like for KDP, and part of that will clearly be strong productivity and efficiency programs, which will take you through at that time.

I have two quick questions. First, Ozan, about the COVID-related costs. I'm not asking for guidance for 2021, but I would like to understand how much you've spent this year and what you expect to spend this year that may become permanent. My second question is for you, Bob. It's evident that the purchase decision is shifting away from traditional brick-and-mortar stores and increasingly into the home, whether through e-commerce or people bringing more items home since they are spending more time there. This trend was noticeable even before the COVID outbreak. KDP has developed a strong business model with your go-to-market portfolio, so I'm curious about how you plan to enhance that competitive advantage as we continue in what seems to be a more stay-at-home environment.

Yes, I will. Good morning, Nik, and thank you for the question. First, let me provide some additional context regarding the COVID-19 expenses that we have been adjusting. We have been consistent in the first three quarters of the year. The costs we excluded from our adjusted results are unique and temporary effects of the crisis, which do not represent our normal ongoing business expenses. This approach aligns with our longstanding policy on extraordinary and one-time costs. The excluded costs primarily involve significant expenses to offer temporary financial incentives for our frontline employees, which account for over 80% of the adjustments. The remainder relates to the extraordinary measures we implemented to ensure employee health and safety, including enhanced benefits for them and their families. As noted, our run rate in the third quarter was lower than in the second quarter, and we anticipate that our fourth-quarter run rate will also be significantly lower than in the third quarter. Therefore, Nik, we never stated that these are sustained costs or an increased cost base within our profit and loss statement; quite the opposite. I think our quarterly trend supports this, and we expect to see a substantially lower figure in the fourth quarter.

Nik, with regard to your point about at-home and how we're thinking about our portfolio and our go-to-market strategy on here, I mean, we’ve referenced mobility data, and it's something that we look at very carefully, and we can get it down to a very granular level. But at the highest level, we think about people spending time at home, people spending time at work, and then other. Other is a whole host of recreation activities, etc. We have really built a portfolio that has the optionality to drive that at-home business. It's not like we are 100% at-home business, far from it. You see the negative impacts on our fountain foodservice business, you see the negative impacts on our away-from-home business. So we keep saying it's not like this was a windfall for us, but we do have the options to pivot towards that changing consumer behavior. And if it shifts, to pivot back. I would point out, on our cold portfolio, we have made significant shifts in where we focus our selling efforts and what we're selling. What you're seeing is large outlets, planned purchases, and stock-ups are continuing to grow. Impulse, while improving sequentially, is still down versus where it was before. We focus a lot of our effort on the cold side of our portfolio on multipack and take-home packs, larger pack sizes, for example. Some of the growth you're seeing in and outside of our CSD business is because we've been able to shift over the past couple of months from businesses that were more heavily focused on single bottles into multi-packs, and it's helping drive growth in our business. When I shift over to the coffee side, the Keurig system was designed for at-home consumption. We've said year in and year out, don't worry about attachment rate; all we're focused on is household penetration. While we're seeing improvement in attachment rate as people spend more time at home, more importantly, we're seeing an acceleration in household penetration. As I said a couple of times, it's really a lasting benefit. As people think about their homes differently, both living at home as well as working from home, they're upgrading across the board. We're seeing a combination of new people coming into our system at a higher rate, and we're also seeing upgrades in brewers of existing consumers. That may not drive growth in the short-term but it's a reconfirmation or a recommitment that they're in the system for the long-term. The away-from-home business, which is offices, has been a negative. I want to offer two points of perspective. If you look at traffic in large offices, it's down 60%. We've never quantified the size of our away-from-home business, but even if it was very small, a negative 60% trend has a major impact on us. The good news is that really can only impact us through, call it, February, and then it becomes actually a tailwind instead of a headwind. So the risk of that, which I know some people are focused on, is pretty well capped, and we've already given you some visibility in the fourth quarter anyway. That really sets us up for strong at-home. Lastly, our investment in e-commerce and our capabilities is paying off really well. When we launched this new company in 2018, and we talked about e-commerce and how we can apply it across the portfolio, I think most people were skeptical at best about what would e-commerce and beverage look like. Nobody is skeptical about it anymore, and it's an area that we're really focused on. If you saw the management changes that we made this week, embedded in that at a level below that, is also an increased focus and commitment to e-commerce because we think that's the future.

I think there's kind of been a view in the investment community that this step-up in households was going to quickly drive an acceleration in organic revenue growth. When I look at the year-to-date performance in coffee, it's pretty similar to last year, and there seems to be kind of a disconnect between that and the penetration you mentioned. I know you just mentioned that a lot of this is being driven by away-from-home business and then you will cycle that in February. So is that kind of the right timeframe where we should think about this higher penetration driving stronger organic revenue growth in coffee? And then how does the step-up in households frame your view of what the business can grow longer term?

Yes. I think the longer-term view is always the best way to view this business. We talked about the year in and year out household penetration increases the system has seen, and there's been a lot of debate and a lot of analysis quarter-by-quarter. Sometimes, when you look at the IRi data month-by-month, it doesn't serve anybody really well. But when you step back and look at it, you see this nice, steady increase. One of the comments we made on an investor conference that we attended fairly recently was that we do expect household penetration to accelerate, and that's why we quantified that for you today to give some perspective. You have to always remember that we're operating off an installed base of already 30 million households in the U.S. and 3 million households in Canada. So even an additional 1 million households, which is a significant growth and profit generator for the long-term, you're putting them on top of an installed base of 30 million. It's such a solid business right now that it's not one that can be moved up or down quickly by any type of action, but it just speaks to the longer-term potential. When we launched the business or the combined company in 2018, we put some information on our Investor Day that is 100% relevant today as it was then, and that is we believe that household penetration for the Keurig system would go north of 50% over time. At the rate that we're growing, that's 10 years out before we even have a conversation of what happens beyond 50%. You're looking at 10 years of solid growth. All this proves is that as people think about spending time at home, they just step up their interest in the Keurig system, increased household penetration. The dividends or the growth you get from that play out over the next couple of years; it's not an instant boost. My last point is, you can look at the IRi data and see we've been growing at-home consumption by north of 10% over the past 6 months or so. On the latest period, it was plus 10%. That tells you what's going on in-home. If you look at that number and then you compare it to what you're seeing on some of the shipment numbers as we've been totally transparent, that is 100% driven by an away-from-home business, primarily large offices, where we're seeing traffic attendance down. So again, that's been a significant drain on us, but there's a limit to that. As soon as we start hitting the month of March and we go into April, that becomes all opportunity and not risk, and it's really that simple to explain the disconnect between what you're seeing at-home versus what you're seeing in total.

I have two quick clarifying questions regarding Beverage Concentrate. It seems that the shipment volume has been running 250 to 350 basis points below the reported bottler case volume. Considering there is a foodservice component, how should we anticipate that correcting over time into fiscal '21? Additionally, has your guidance for Beverage Concentrate factored in the recent lockdowns in several major U.S. cities announced in the last few days?

Yes. Peter, your comment is right about the disconnect sometimes and the timing of it, and it's really hard to forecast when they get aligned. But your statement that over time they align is 100% correct. The biggest takeaway from the Beverage Concentrates segment is the fact that we've seen sequential improvement in restaurants. I would point out that when you look at the KDP businesses in fountain and foodservice, that's our business that services restaurants and hospitality; it is heavily concentrated towards quick-serve restaurants. The Dr Pepper brand is the most available brand in quick-serve restaurants, and they have done a really good job of navigating towards drive-through and take-out. Even if there is a resurgence, as we look at what may happen in the next couple of months, we're really confident that that segment, in particular, will not only hang in there but may actually do better—although that's not in our forecast but it may actually do better as traditional sit-down restaurants could become more challenged and people shift even more towards takeaway and drive-through. That's the way that we're thinking about it going forward, but we were encouraged to see at least a sequential rebound in that business, and we're watching and partnering with those restaurant partners to try to help them grow their business. They're doing an excellent job of navigating to the new world.

I want to talk a little bit about Packaged Beverages and the share gains that you've seen. I know in the script you talked about conviction in some of these household penetration gains, in particular, for these brands sticking. But I was also curious about the degree to which some of the performance has benefited from some of your competitors narrowing SKU counts. While in crisis mode, particularly in flavors, flavors aren't really core to the other players. I was just wondering to what degree you think that and kind of can shortages may be benefiting you guys? And then what you're doing beyond the innovation to try to hold on to those gains when the situation does ultimately normalize?

Thank you for your question, Lauren. Good morning. There are several factors contributing to our performance, and we've analyzed these to ensure we can maintain what's working. Our success is mainly due to a combination of strong marketing and innovation across our portfolio, including not only our CSD brands like Dr Pepper and Cream and Canada Dry Bold, but also new product introductions in Snapple that are performing well. Additionally, we've optimized our brands by placing them in the right pack sizes, formats, and channels, which reflects our proactive approach to consumer preferences. If consumer trends shift again, I’m confident we can adjust accordingly. The majority of our household penetration growth stems from our marketing innovation and effective execution, rather than any supply issues or missteps by others. We believe this growth in household penetration will be sustainable. It's also important to note that many of our brands, particularly Dr Pepper, are manufactured and distributed by independent companies and some of our competitors. This can be confusing, but those familiar with the business understand that while our execution can lead to gains, performance issues elsewhere, such as can shortages, can offset those gains. Our strong results are a mix of positives and negatives, and while we've navigated these challenges effectively, not all outcomes are favorable, which could present challenges as we move into next year.

Thank you, and thank you, everyone. This is Tyson. Thanks for dialing in today. I know it's a very busy day for many of you. The IR team is around, so please feel free to reach out to myself or Steve for any follow-ups. Thanks, everyone. Bye.